Surprise! This week President Obama signed the Bipartisan Budget Act of 2015. The Act included an amendment to the budget that will close “unintended loopholes” in the Social Security Act.
The amendment was added to the larger Budget Act with no public hearings on the issue. It was the result of secret backroom budget negotiations between Congressional Leaders and the Obama administration.
Pay attention. This could affect your long-term planning.
What is changing?
The “unintended loopholes” that are being closed include:
1) The popular strategy of File and Suspend will no longer be allowed after 180 days from passage of the act.
As you probably know, this strategy allowed the higher earning spouse to file for their benefit at full retirement age and then suspend the benefit until they reached age 70. The higher earning spouse’s benefit would continue to earn delayed retirement credits until age 70 and the lower earning spouse could then file for their spousal benefit.
Under the new rules anyone who files and suspends will no longer be able to trigger benefits for a spouse or dependent child. This effectively does away with the option of letting one spouse delay benefits to age 70 while allowing the other spouse to collect a spousal benefit off the record of the higher earning spouse.
2) If you turn 62 in 2016 or later, the Claim Now, Claim More Later strategy will also disappear.
Though less widely known, this strategy allowed the lower earning spouse to apply for their own benefit and the higher earning spouse to file a restricted application for their spousal benefit based on the lower earning spouse’s record. The higher earning spouse could then switch to their own higher benefit at age 70.
Under the new law, both spouses will be required to file for all benefits at once.
The good news
- If you have already used the File and Suspend strategy you are grandfathered in. If you haven’t, you have until May 2, 2016 to do so.
- If you will turn 62 prior to the end of 2015, you will retain the right to collect just a spousal benefit starting at your full retirement age of 66.
- The new rules will not affect widows or widowers. They will retain the right to decide whether to collect a survivor benefit first and switch to their own retirement benefit later. Or take their retirement benefit first and switch to the survivor benefit later.
There you have it. Although the core benefits of Social Security remain unchanged, these changes are important as they may affect your claiming options. Be sure to learn the state of your Social Security benefits because you many need to make some quick decisions.